Cineplex Inc (CGX.TO)

This stock is buffeted by the fact that it is totally dependent on someone else for their product. If it is a hot season for movies, they are going to do well. If it’s not, they don’t get the bums into the seats in order to sell popcorn, which is where they make their money. To their credit, they have been diversifying away into other forms of entertainment distribution and game rooms. They are doing the right things. It has been a decent place to be, and probably will continue to be.

This had a very solid top line growth in Q1, and he raised his outlook for a better box office in 2017. He sees really nice growth in Digital media and gaming and sees 23% EPS. Trading below its five-year average. However, at 30X earnings, it is still pretty pricey, and vulnerable to a bit of a hiccup. A lot of growth is tied to a successful rollout of their rec room. If they hook up on that, then it is a little pricey, but all in, a name that is probably good here. You could probably sell some Puts, oblige yourself to own it at around $48, get paid a little bit.

(A Top Pick April 6/16. Up 5%.) This continues to do well. Very strong management. Executing on their plans of diversifying their revenues, whether inside the theatre to building the rec room. Shares are trading at 16X enterprise value over EBITDA. Pays a nice dividend of 3.5%.

The movie business is still good, but it kind of depends on blockbuster shows coming out. However, they’ve gone into a lot of other things. They are doing a restaurant kind of thing as well as video play and arcade games. Dividend yield of 3.3%.

When people go to movies, they are not now just going to the movies. Some are going to VIP movies. They are going to the enhanced screens. While it used to be a $20 experience, now you can pay $80. They are also opening up rec rooms where you can spend your money before you even go into the movie theatre. When you go on an airplane, movies are brought to you by Cineplex. They also have advertising. A lot of revenue lines. Dividend yield of 3.1%. (Analysts’ price target is $58.50.)

Has owned this for a number of years. It is the largest theatre operator in Canada. The concession and ticket prices represents 75% of earnings. The other 25% is media, and there are good growth prospects in this area, particularly in the US. They are trying to diversify the revenue stream and are opening the rec room concept. They are very good at increasing the amount that you spend once you are in their theatres. Yielding around 3%.

(A Top Pick July 5/16. Up 5%.) One of those monopolies he believes is a wonderful name to own in the Canadian consumer space. Bought it because they were getting more dollars of revenue for every visit. A great kind of growth name that you don’t have to pay extremely high values for.

It amazes him what business lines they get themselves into. He would watch for other areas that they get involved in, such as e-gaming, etc. They are now one of the leading players in the entertainment sense. He is looking at this.

He continues to like this. It had a disappointing 2016, not the best year for movies. In spite of the weak Q4, they are getting increasing revenues from non-theatre tickets. They are expanding their revenue streams from gaming and media sell. You get the upside when you get a good movie cycle, but this is a business that is well-run with stable cash flows. Pays a 3% yield.

*Short* A pairs trade with Cinemark (CNK-N). This is trading at twice the valuation of Cinemark.

(Top Pick Feb 9/16, Up 8.49%) She still likes it. She bought it for the 3-3.5% yield and capital return of 5-8%. She still likes it. They are the largest theatre operator in Canada with a 77% market share. They can’t control what happens at the box office, but they are really good at things they can control such as concessions spending. They have advertising in their theatres and advertising signage. They also have ‘rec room’ which offers gaming, etc. They are a well managed company and will continue to grow. She will be continuing to hold it.

This has an almost monopoly like position in theatres and movie distributions in Canada. Because of that, it gets priced fairly richly. They just had an earnings miss, but there can be revenue volatility from quarter to quarter. You could take a look at some of the US theatre companies which historically have traded at lower valuations.

One of his favourite holdings. They have been squeezing more and more dollars out of our pocketbooks. They have alternative entertainment venues. They are getting wallet share. It is a safe holding. This is a great name to own. 3.1% dividend.

He recommends this because there is no interest rate sensitivity. High quality business. It has underperformed for the last 6 months, and thinks people are going to start looking back at quality. The stock just broke out over $52 which he thinks is very positive. They also have a very good slate of movies coming out this year, and have been able to diversify away from just movies. Dividend yield of 3.11%. (Analysts’ price target is $54.82.)

(A Top Pick Feb 9/16. Up 8.6%.) They are doing very well on their theatre side. They have no controls on the movie slate, but have made a lot of good effort on diversifying the revenue stream. We are seeing that with the opening of the rec rooms. The media side, which is about 20% of their revenue, is increasing with all the digital signage. They got the A&W across North America. Yield of 3%.